1. Lecture 05: Opportunity Identification and Country Selection

2. International Market Selection
Which market/s to enter?
What the „right market“ to enter is?
What is „international market“?
1. a country or a group of countries
2. a group of customers with nearly the same characteristics (from several countries)
Market opportunities:
Existing markets
Latent markets – recognized potential
Incipient markets – market does not exist now - indication/trends – future emergence of need

3. Uppsala model of the internationalization process
INTERNATIONAL MARKET SELECTION
INTERNATIONAL MARKET SEGMENTATION
THE FIRM
Degree of internationalization and overseas experience
Size/amount/quality of resources
Type of industry/natue of business
Internationalization goals
Existing networks of relationships
THE ENVIRONMENT
International industry structure
Degree of the internationalization of the
market
Host country:
Market potential
Competition
Psychis/geographic distance
Market similarity

4. Where to Enter? Location-Specific Advantages (cont’d)
STRATEGIC GOALS
LOCATION-SPECIFIC ADVANTAGES
ILLUSTRAVTIVE LOCATIONS MENTIONED IN THE TEXT
STRATEGIC GOALS
LOCATION-SPECIFIC ADVANTAGES
ILLUSTRAVTIVE LOCATIONS MENTIONED IN THE TEXT
Natural Resource Seeking
Natural Resource Seeking
Possession of natural resources and related
Transport and communication infrastructure
Possession of natural resources and related
Transport and communication infrastructure
Oil in the Middle East, Russia, and Venezuela
Oil in the Middle East, Russia, and Venezuela
Market Seeking
Market Seeking
Abundance of strong market demand and
customers willing to pay
Seafood in Japan
Seafood in Japan
Abundance of strong market demand and
customers willing to pay
Efficiency Seeking
Efficiency Seeking
Economies of scale and abundance of
low-cost factors
Manufacturing in China
Manufacturing in China
Economies of scale and abundance of
low-cost factors
Innovation Seeking
Innovation Seeking
Abundance of innovative individuals, firms,
and universities
IT in Silicon Valley and Bangalore, financial services
in New York and London and aerospace in Russia
IT in Silicon Valley and Bangalore, financial services
in New York and London and aerospace in Russia
Abundand universities
ance of innovative individuals, firms,
Source: First two columns adapted from J. Dunning, 1993, Multinational Enterprises and the Global Economy (pp. 82–83), Reading, MA: Addison-Wesley.

5. Objectives of Market Entry
Foreign Market Entry
Firm Specific
Characteristics
Objectives of Market Entry
Product
Selection
Country
Selection
Mode of Entry
Strategy and
Time of Entry

6. 1. Firm Specific Characteristics
Firm Specific Characteristics Provide the Lens to Assess the Foreign Market Entry Decision. Product Selection, Country Selection, Mode of Entry, Strategy, and Timing All Depend on Firm Specific Characteristics.

7. 1. Firm Specific Characteristics
Company Resources
 Core Competencies
 Financial Resources
 Ability to take Risk
 Human Resources
 R & D
 Sources of Supply
 Alliances and Strategic Networks
 Connections with Customers, Politicians,
Governmental Agencies, Related Companies

8. 1. Firm Specific Characteristics (Cont.)
- Industry Environment
 Market Presence
 Size, Growth, Maturity
 Fragmented versus Concentrated
 Profitability of Industry
 Target Market

9. 1. Firm Specific Characteristics (Cont.)
Competitive Environment
 Positioning
 Competitive Advantage
 Strength and Weaknesses

10. 2. Objectives of Market Entry
2.1 Production Focused
- Cost Advantages
 Economies of Scale
 Global Sourcing
 Labor Cost
 Cost to Protect Environment
 Taxes
Knowledge Transfer
Potential for Innovation
Access to Skilled Labor

11. 2. Objectives of Market Entry (Cont.)
Porter’s Diamond
Firm strategy, structure and rivalry
Factor conditions
Demand conditions
Related and supporting industries

12. 2. Objectives of Market Entry (Cont.)
Innovation and Competition
“Companies gain advantage against the world’s best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home based suppliers, and demanding local customers”
Michael Porter

13. “Without Coke, Pepsi would have a tough time being an
original and lively competitor…..And on the other side of the fence, I’m sure the folks at Coke would say that nothing contributes as much to the present day success of the Coca-Cola Company than…Pepsi”
Roger Enrico
Ex-CEO of Pepsi Cola

14. 2. Objectives of Market Entry (Cont.)
Innovation and Economic Clusters
Clusters are geographic concentrations of interconnected companies and institutions in a particular field.
Clusters increase competition and cooperation
Clusters increase communication between companies and employees.
Clusters decrease transaction cost by establishing trust.
Clusters increase productivity. Clusters offer access to skilled labor, local suppliers, and public institutions
Clusters offer a high potential for innovation. Companies in clusters are close to competition, customers, and public institutions. Employees might feel peer pressure.
Strategic Implications:
Choosing location not only based on input cost. Consideration of Potential for Innovation is a critical factor for long term success.

15. 2. Objectives of Market Entry (Cont.)
2.2 Market Focused
-Capturing new Markets
- Diversification
- Brand name Leverage
- Economies of Scope
- Access to Know How and Qualified Employees
2.3. Competition Focused
- First Mover Advantage
- Preemptive Strike
- Learning in Leading Markets
- First - Mover (Dis)Advantage

16. “If you are going to be the world’s best furnishing
company, you have to show you can succeed in
America, because there is so much to learn here.”
Goran Carstedt
Head of Marketing IKEA

17. 3. Country Selection

18. Potential candidates are identified using easily available statistical
3. Country Selection
1. Region
Identification
Potential candidates are identified
using easily available statistical
data.
2. Preliminary
Screening
Involves rating the identified
countries on macro level
indicators, such as political
stability, geographic distance and
economic
c development.
3. In -
depth Screening
Analyzes data specific to the
industry and product markets and
segments. Analyses of Market
Attractiveness
4. Final Selection
Company objectives are brought
to bear for a match.

19. 3. Country Selection (cont.)
Analysis of Market Attractiveness
 Size
 Growth
 Competition
 Trade Barriers
 Analysis of Political Risk
 Currency
 Infrastructure
 Capital Requirements
 Production Cost
 Taxes
Economic Freedom Index
Market Potential Index

20. General Data Resources
Michigan State CIBER international business information repository:
U.S. Commercial Service - Export assistance arm of the Department of Commerce
Available through UNLV Library Electronic Collections
Global Market Information Database

21. 5. Strategy and Time of Entry
- Domestic Market Extension
- Multinational
Global
Market Concentration versus Market Spreading

22.  Low Penetration 5. Strategy and Time of Entry (Cont.)
Market Spreading versus Market Concentration:
Market Concentration
 High Penetration
 High Control
 Knowledge of Market
Conditions
 Economies of Scale
 Economies of Information
 Steep Learning Curve
Market Spreading
 Low Penetration
 Low Control
 Little Effort in Single Markets
 Target Market Does not
Reflect National Borders
 Diversification

23. 5. Strategy and Time of Entry (Cont.)
Profit and Risk in International Markets
Operating Profit
Risk
Domestic Operations Only
International Experience

24. BERI Index – Business Environment Risk Information Index
Criteria
Weight
Value1)
Total value2)
Political stability 3
Economic growth
2,5
Currencies convertibility
Manpower costs/productivity of labour 2
Short-time credits
Long-time credits/venture capital
Attitude to foreign investors and profits
1,5
Nationalization
Inflation
Balance of payments
Execution of contracts
Bureaucracy 1
Communications
Local management and partners
Professional services and contractors
0,5
Sum 25
х4 (max)
=100(max)
1) Scale «0» to «4»: 0 – unacceptable terms; 1 – bad terms; 2 – middle terms; 3 – good terms ; 4 – ideal terms
BERI ≥ 80 – favorable investment environment, developed economy; 70 ≤ BERI ≤ 79 – not so favorable and developed; 55 ≤ BERI ≤ 69 – developing economy having investment potential; 40 ≤ BERI ≤ 54 – high level of risk, underdeveloped economy; BERI < 40 – a very high level of risk, investing is possible only exceptionally

25. National Competitive Advantage
Death-of-distance hypothesis
Geographic location alone should not lead to firm-level competitive advantage because firms are now more able to source inputs globally (ex: capital, commodities, etc.) Labor markets also have become more global.
Computer manufacturers – China & Taiwan
Consumer electronics – Japan & South Korea
Mining companies – Australia
Why are certain industries in some countries more competitive than in others?
Answer: National Competitive Advantage
INSTRUCTOR: An Interactive video activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.5.

26. Porter’s Diamond Model of National Competitive Advantage
An embedded video at the bottom of this slide is a five-minute section of an interview with Michael Porter in which he states he is optimistic about America’s future in the world. This video is also available on the DVD available with the textbook.

27. National Competitive Advantage Framework
Factor conditions
A nation’s endowments in terms of national, human, and other resources as well as supportive infrastructure and institutions.
Demand conditions
Specific characteristics of demand in a firm’s domestic market
Competitive intensity
Highly competitive environments tend to stimulate firms to outperform others (e.g., German car industry)
Related and supporting industry
Leadership in related and supporting industries can also foster world-class competitors in downstream industry
Complementarity
INSTRUCTOR: An Interactive video activity is available online through McGraw-Hill Connect on this section of the text. It covers Learning Objective 10.5.

28. Regional Clusters Regional cluster
A group of interconnected companies and institutions in a specific industry, located near each other geographically and linked by common characteristics
Knowledge spillover
Positive externalities that are regionally constrained
Exchange of ideas among firms in a cluster

29. Mapping a Regional Cluster: Research Triangle
INSTRUCTOR: An Interactive activity is available online through McGraw-Hill Connect on this section of the text.

30. Geographical Distribution of Clusters
Boise
Information Tech
Farm Machinery
Wisconsin / Iowa / Illinois
Agricultural Equipment
Boston
Mutual Funds
Medical Devices
Mgmt. Consulting
Biotechnology
Software and
Networking
Venture Capital
Minneapolis
Cardio-vascular
Equipment
and Services
West Michigan
Office and Institutional
Furniture
Western Massachusetts
Polymers
Omaha
Telemarketing
Hotel Reservations
Credit Card Processing
Seattle
Aircraft Equipment and Design
Software
Coffee Retailers
Rochester
Imaging Equipment
Michigan
Clocks
Warsaw, Indiana
Orthopedic Devices
Detroit
Auto Equipment and Parts
Hartford
Insurance
Oregon
Electrical Measuring Equipment
Woodworking Equipment
Logging / Lumber Supplies
Providence
Jewelry
Marine Equipment
New York City
Financial Services
Advertising
Publishing
Multimedia
Silicon Valley
Microelectronics
Biotechnology
Venture Capital
Pennsylvania / New Jersey
Pharmaceuticals
Las Vegas
Amusement / Casinos
Small Airlines
Pittsburgh
Advanced Materials
Energy
North Carolina
Household Furniture
Synthetic Fibers
Hosiery
Los Angeles Area
Defense Aerospace
Entertainment
Wichita
Light Aircraft
Farm Equipment
Cleveland / Louisville
Paints & Coatings
San Diego
Golf Equipment
Biotech/Pharma
Baton Rouge /
New Orleans
Specialty Foods
Dalton, Georgia
Carpets
Dallas
Real Estate Development
Southeast Texas / Louisiana
Chemicals
Nashville / Louisville
Hospital Management
Colorado
Computer Integrated Systems / Programming
Engineering Services
Mining / Oil and Gas Exploration
South Florida
Health Technology Computers
Source: Adapted from Professor Michael E. Porter, Harvard Business School

31. Screening of markets/segments – fine-grained screening - e. g
Screening of markets/segments – fine-grained screening - e.g. GE matrix – market attractiveness/competitive strength
Market/country attractiveness
Market size and growth (total and segments)
Buying power
Market seasons and fluctuations
Average industry margin
Competitive conditions (concentration, intensity, entry barriers…)
Market prohibitive conditions and government regulations
Infrastructure
Economic and political stability
Psychic distance
Competitive strength
Market share
Marketing ability and capacity (country specific know-how)
Products fit to market demand
Price
Contribution margin
Image
Technology position
Product quality
Market support
Quality of distribution and service
Financial resources
Access to distribution channels
Country- of - origin image

32. The market attractiveness/ competitive strength matrix